These days banks have made the procedure of taking loans so easy that in few seconds you can get your required amount in your bank account, all thanks to the paperless procedure of providing loans to the customers ! Due to this, taking loan looks like an easy task and often make you feel that you should take loan too as if you are not taking loan, you are missing out on living life to the fullest.
But today in this article we’ll tell you why you should not take loans in some circumstances as you may land yourself into deep trouble. Talking loan in following situations can easily lead you to the poor financial decision you ever made. So, to make sure that you do not regret your decision of taking loan we have compiled some points which you need to remember before taking loans.
Don’t ever take loan for your Desires or Wants
We believe loan should always be taken when there is a urgency or there is a genuine need. Taking loans just for your desires or wants may be your worse financial decision. For example, some people like to take loan to buy their favourite smartphone, for their fancy car, for their exotic travel destination. If you are also considering taking loans for these things then you must stop now as these things may give you satisfaction for shorter period of time but in a long run taking loan for these things may hurt you. You’ll be paying interest for the things that are not even generating income for you. Also these spending can increase your debt burden and may also affect your ability to take loans in future because whenever you take loan, everything boils down to your credit score and your debt-to-income ratio.
Avoid taking loan If your income is unstable
You must avoid taking loan if you happen to be a in a industry or organisation that operates at particular time of the year or in specific seasons. For example, If you are a freelencer and your income often keeps incresing or decreasing then you must think twice before taking loan. Once you take loan you are bound to pay EMIs on time irrespective of your business and irrespective of your job profile. And if you are found to delay or skip any EMI, not only it decreases your credit score, it also puts a question mark on your ability to take future loans. Although, there is no rule or condition that a person with unstable income cannot take loan but if you happen to have good income and you are confident enough to pay EMIs on time then only you should consider taking loan
Say No to loan If you already have a running loan
You already have a loan and you are planning to take another loan, is already a courageous decision because you are already in debt. The more loan you take the more complex your monthly finance becomes for you as you have more obligations. It also increases your debt-to-income ratio which is quite important as whenever you go to the bank for loan, they always check your credit score and debt-to-income ratio. If your debt-to-income ratio is really high that directly signals that you are living your life beyond your means. Eventually this may lead you to debt trap where you will be taking more loans to clear your older ones and this vicious cycle will never come to an end.
Never take loans on high interest rates
It is often seen that banks are ready to give you pre-approved loans but they do so on very high interest rate. Not only pre-approved loans, in fact loans on credit card are often considered as very high interest rate loans. So, you should avoid taking loans on high interest even if they are pre-approved. Pre-approved loans may look like easy to go options, as you do not need to provide any document and the whole amount can get credited in your account in few minutes. But at very high interest rate does it make sense ? Simply not ! On the other side taking loans on credit card can charge you interest rate as much as 40-50% annually which is crazy. And by any chance, if you are not able to pay off the balance, then it will directly land you to the debt trap.
Taking loan for business, think twice
It is quite in fashion now that people do not shy away from taking loans for their business especially in this era of a start-up world. It may not be a bad decision to take a loan for a business but there’s multiple things that you should be cautious about. If you are taking a loan for your business, you must have a crystle-clear plan as business loans often involves larger amount and unfortunately if you do not get the desire result out of your business, your business can shut down but still you need to pay your loan amount from your pocket. If you are on a journey of entrepreneurship than it is advisable to start a business with your own money and a business that involves less risk & less investment. But if you have already thought of starting a business then you must be prepared with proper research, well-thought out business plan and experience in the Industry that you are hopping into.
